Polestar Automotive Holding UK PLC Q2 FY2024 earnings call

• New incoming CEO Michael Lohscheller to join future calls, with thanks to outgoing CEO Thomas. - Q2 sales saw over 80% improvement, with sales team accelerating efforts. - Polestar 4 started deliveries in Europe, with marketing campaigns featuring athletes Armand Duplantis and Sarah Sjöström. - Polestar 3 production started in South Carolina, making it the first Polestar manufactured on two continents. - Sales model changes in Europe with non-genuine agencies to increase efficiency and sales. - Inventory turnover improved by 30%, driving cash and working capital improvements.

In Q2 2024, global vehicle sales were 13,150 cars, up over 80% from Q1. Revenue increased close to 70% to $575 million. Gross result was a small negative at $4 million vs Q1, driven by Polestar 2 volume growth and initial Polestar 3 deliveries. Year-over-year, revenue decreased $118 million or 70% due to lower global volumes and higher discounts, but was offset by impairment releases and revenue recognition normalization. SG&A costs in Q2 were up 6% vs over 80% volume growth, while R&D decreased $36 million or around 75% due to Polestar 2 IP amortization moving to COGS.

• Expect stronger volumes in the second half, particularly in the fourth quarter. - Sales momentum in Q2 has positively impacted inventory levels and cash flow. - Confident of a stronger second half, especially from fourth quarter sales of premium SUVs Polestar 3 and 4.

• Potential tariff impacts, including European Union tariff changes which could affect gross margins. - Share price below $1 threshold as a risk, with efforts ongoing to address and ensure compliance to avoid delisting.

Q: Can you provide more detail on the sequential improvement in COGS per external unit?

A: Working hard on cost reductions, including improvements in battery raw material prices and negotiations with Geely and Volvo.

Q: Can you give more on impairments or releases in Q2 vs Q1?

A: No exceptional impairments noted, with focus on cost reductions.

Q: Explain non-cash operating adjustments and working capital in Q2, and normalized working capital level?

A: Main reason for good operating cash flow is significant reduction in inventory, around $300 million, with continued efforts to manage working capital.

Q: Are Polestar 3 and 4 sold out for 2024 in Europe and U.S.?

A: Polestar 4 deliveries in U.S. are late in 2024, Polestar 3 has a large order book in Europe and U.S. but expecting more orders as test drives ramp up.

Q: Deliveries in second half, mix between Polestar 2, 3, 4 and impact on gross margins?

A: Third quarter to be better than previous, fourth quarter stronger. Polestar 2 to have smaller portion, Polestar 3 and 4 to drive gross margin improvement towards double-digit by end of year.

Q: Capital needs after recent $300 million funding?

A: Cash burn lower than last year, secured $950 million club loan and $300 million debt financing, with working capital facilities largely undrawn, no immediate need for more capital but looking for equity injections.

Q: Quantify benefit to gross profit from impairment release and JV revenue recognition?

A: Main drivers include impairment release, revenue timing adjustments, and Polestar 2 amortization moving to COGS.

Q: Polestar 4 sales in China and benefits from Geely partnership?

A: Polestar 4 well received in China, benefits include cost base from Geely, R&D alignment, production in South Korea for U.S. and other markets, and plan to launch Polestar 3 and 5 in China later.

Q: Sustainability of working capital strength with new model ramp?

A: Working closely with retail partners to speed up sales and delivery, production in U.S. and South Korea to reduce lead times, and 90% trade financing capacity undrawn to support working capital.

Q: Tariff situation impact on gross margins and goals for double-digit margins?

A: Tariffs in U.S. and Europe being addressed via production in South Carolina and South Korea, cost reduction activities, and dialogue with EU to mitigate impact. Goal is to achieve double-digit gross margins by end of year.

Q: Cash burn after working capital relief and outlook?

A: Working capital kept lean, gross margin to improve with new models, investing cash flow to decrease next year, leading to better cash flow gradually, especially next year.

Q: Measures to ensure NASDAQ compliance and avoid delisting?

A: Filed audited 2023 results on Form 20-F to clear reporting deficiency, monitoring share price below $1 threshold closely, with focus on business improvement to boost share price.

Q: Plans to increase share value?

A: Focus on business improvement through volume growth, targeted marketing, expanding geographical footprint, and effective sales model changes.

Q: How to expose brand more, sell more cars, and keep stock value up?

A: Targeted marketing, increasing test drives, expanding into new countries and markets, and enhancing sales model to engage investors and retailers for increased sales.